Praetorian Industries will pay a dividend of $2.50 per share this year and has an an equity cost ofcapital of 8%. Praetorian's shares are currently trading at $84 per share. By comparing Praetorian with similar firms, an investor expects that its dividends will grow by up to 5% per year. What is the best next step that the investor should take regarding Praetorian's shares?

Question

Quizplus · Accepted Answer

The investor should revise her estimate of Praetorian's dividend growth based on her comparison with similar firms. This will help her determine if the current dividend yield is attractive and if it is likely to increase in the future. Short selling, revising Praetorian's equity cost of capital, or selling all shares may not be the best course of action without further evaluation.

Praetorian Industries Will Pay a Dividend of $2